Arm shares fall 6% as tepid forecast takes shine off AI optimism

Bets that Arm will benefit from a surge in computing have nearly doubled the chipmaker's since its initial public offer last September, giving it a market value of more than $100 billion.

"This is a typical case of ARM not being able to live up to heightened expectations," said analyst Angelo Zino, adding that Arm's is overtly reliant on the , which has recently shown slower growth.

UK-based Arm, which earns by licensing its chip designs and through royalties, has been expanding into the where operators are looking to build their own chips to power new AI models and reduce their reliance on dominant supplier .

"AI (for Arm's technology) will take some time to grow into the revenue mix to absorb that weakness (from the smartphone market)," said Tejas Dessai, a research analyst at .

The UK chip designer said it was expecting full-year revenue between $3.8 billion and $4.1 billion, the midpoint for which fell slightly below the consensus estimate of $3.99 billion, according to data.

Its revenue in the March and the forecast for the current quarter, however, came in above expectations.

At least two analysts cut their price target on Arm, whose chip designs power nearly every smartphone in the world.

Arm shares at 64.68 times its 12-month forward earnings estimates, significantly higher than the industry of 19.95, according to LSEG data.

Shares of Nvidia and were down between 1% and 2% on Thursday.